Chile
This report analyses the implementation of the AEOI Standard in Chile with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Chile’s legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While Chile’s international legal framework to exchange the information with all of Chile’s Interested Appropriate Partners (CR2) is consistent with the requirements, Chile’s domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has a deficiency significant to the proper functioning of an element of the AEOI Standard. More specifically, a deficiency has been identified in Chile’s enforcement framework.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
Chile’s implementation of the AEOI Standard is not compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While Chile is on track with respect to exchanging the information in an effective and timely manner (CR2), there are fundamental issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Non-Compliant
General context
Chile commenced exchanges under the AEOI Standard in 2018.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Chile:
enacted Decree N°418, 2017, Ministry of Finance, Article 62 ter of the Tax Code which was introduced by Act 21.047; and
introduced secondary legislation in Resolución Ex. SII N°48 of 31 May 2018 and Resolución Ex. Ministry of Finance N°173 of 27 June 2018.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 July 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 30 June 2018 and on Lower Value Individual Accounts and Entity Accounts by 30 June 2019.
With respect to the exchange of information under the AEOI Standard, Chile is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2018.
Table 1 sets out the number of Financial Institutions in Chile that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Chile requires the reporting of Financial Accounts held by all non-residents and domestic residents and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Chile’s administrative compliance strategy, which is analysed in the subsequent sections of this report, and Chile should be able to monitor these statistics in a continuous manner.
Table 2 sets out the number of exchange partners to which information was successfully sent by Chile in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Chile’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Chile:
the Tax Commissioner (as part of the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Chile’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by requiring Financial Institutions to register and putting in place a system for them to report the required information. Financial Institutions are required to send information in an XML file that is then validated against the schema; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Chile’s legal frameworks implementing the AEOI Standard concluded with the determination that Chile’s domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Chile’s implementation of the AEOI Standard in practice and where particular identified gaps in Chile’s legal frameworks directly impact its implementation in practice, these are mentioned below.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Chile are below, organised per Core Requirement (CR) and sub-requirement (SR), as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
Chile’s domestic legislative framework is in place and contains most of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in relation to the framework to enforce the requirements (SR 1.4). More specifically, Chile’s legislative framework does not include rules to prevent Financial Institutions, persons or intermediaries from adopting practices intended to circumvent the due diligence and reporting requirements.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Chile has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary. While a deficiency has been identified concerning making explicit how to interpret the term Investment Entity, given there is nothing to suggest the interpretation would otherwise be incorrect, the deficiency is considered to be relatively minor and its impact not to be material.
Chile should amend its domestic legislative framework to require the term Investment Entity to be interpreted consistently with similar language defining “financial institution” in the Financial Action Task Force Recommendations.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Chile has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Chile has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Chile has a legislative framework in place to enforce the requirements in a manner that is largely consistent with the CRS and its Commentary. However, a deficiency has been identified. More specifically, Chile’s domestic legislative framework does not contain rules to prevent Financial Institutions, persons or intermediaries from adopting practices intended to circumvent the due diligence and reporting procedures as required. This is a key element of the required enforcement framework and is therefore material to the proper functioning of the AEOI Standard.
Chile should amend its legislative framework to include rules to prevent Financial Institutions, persons and intermediaries from adopting practices intended to circumvent the due diligence and reporting procedures.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Chile’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Chile’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Chile and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Chile has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Chile put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Chile’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Assessed jurisdiction’s comments on the assessment of its legal frameworks
Chile would like to express its appreciation for the work done by the Global Forum Secretariat, the AEOI Assessment Panel and the AEOI Peer Review Group in evaluating Chile's legal frameworks implementing the AEOI Standard. Chile also thanks the Secretariat of the Global Forum for its valuable assistance throughout this process. Chile supports the work of the Global Forum, remains fully committed to the effective exchange of information and will continue working towards ensuring full compliance with the AEOI Standard.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Chile are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Chile’s implementation of the AEOI Standard is non-compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, there are fundamental issues in relation to Chile ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with its exchange partners to ensure effectiveness (SR 1.6). Chile should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Chile implemented some of the requirements in accordance with expectations. However, fundamental issues were identified. The key findings were as follows:
Chile does not have an overarching strategy to ensure compliance with the AEOI Standard, nor has it conducted a risk assessment. Chile’s current planned compliance activities are limited and only recently implemented. Furthermore, there does not appear to be a formalised plan or activity undertaken to ensure that Reporting Financial Institutions correctly apply the requirements of the AEOI Standard where these requirements are only included in Chile’s non-binding guidance, nor to ensure that the interaction between Chile’s AEOI and AML frameworks always results in reporting in accordance with the AEOI Standard.
To understand its population of Financial Institutions, Chile relies on the tax administration database and compares it with public lists of regulated entities maintained by the Central Bank of Chile, Banks and Financial Institutions Superintendence and the Financial Market Commission. From this information Chile was able to identify several Financial Institutions that incorrectly did not report. Chile plans to contact these but has not yet implemented corrective actions. Chile does not utilise other relevant information sources to effectively understand its population of Financial Institutions, including relevant non-regulated entities.
The tax administration responsible for implementing Chile’s compliance strategy appears to have the necessary powers and has some human and technical resources from various departments that have been allocated to ensure the AEOI Standard is effectively implemented, although the adequacy of this resourcing is unclear.
Chile has not yet implemented a compliance plan that includes in-depth reviews and the inspection of records held by Reporting Financial Institutions. Chile has accordingly not implemented any enforcement processes.
Chile was unable to demonstrate how it addresses circumvention of the requirements. This reflects its lack of a legal basis to prevent practices to circumvent the due diligence and reporting procedures. Furthermore, Chile does not have processes in place to ensure self-certifications are obtained as required and to follow up on undocumented accounts.
Chile keeps its jurisdiction-specific lists of Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes (it does not have a jurisdiction-specific list of Non-Reporting Financial Institutions).
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by Chile, the presence of the key data points of the Tax Identification Numbers and dates of birth appeared to be in line with most other jurisdictions. However, Chile does not collect and monitor information on the number of undocumented accounts reported by its Reporting Financial Institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.
Three exchange partners highlighted issues with respect to the information received from Chile, such as missing accounts and negative interest payments. Follow-up discussions confirmed that Chile is aware of these issues is seeking to improve the situation. More generally, many of the exchange partners that received a significant number of records from Chile indicated that they achieved a success rate when matching the information received from Chile with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Based on these findings it was concluded that Chile is not meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, fundamental issues have been identified, including with respect to implementing a compliance strategy based on a risk assessment, developing procedures to address the requirements are being properly implemented, implementing compliance verification activities and applying enforcement procedures in practice. Chile should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Chile should develop and put in place an overarching compliance strategy, informed by a risk assessment that takes into account relevant information sources, that includes policies and procedures covering the key areas of the effective implementation of the AEOI Standard, including that the application of the provisions contained only in non-binding guidance is effective in practice and that the interaction between its AML framework and its CRS framework results in the collection and reporting of information in accordance with the AEOI Standard.
Chile should further develop and implement effective procedures to identify its population of Financial Institutions to ensure that they correctly apply the definitions of Reporting Financial Institution and Non-Reporting Financial Institution and report information as required, specifically including non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
Chile should develop and implement a plan for the responsible authority to verify compliance, including appropriate verification activities to identify non-compliance in key areas, such as whether self-certifications have been obtained as required.
Chile should implement systems to collect and monitor information on undocumented accounts to inform its compliance strategy.
Chile should develop and implement a process to commence enforcement activities where non-compliance is identified.
Chile should develop and implement a policy that provides that, where circumvention is identified, action is taken to address it. Reference is made to the recommendations made when assessing Chile’s legal frameworks implementing the AEOI Standard.
Chile should ensure that Reporting Financial Institutions reporting undocumented accounts are identified and there is a defined policy to follow up with them.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
Chile has not yet put in place procedures to engage and collaborate with its partners on compliance and enforcement and so does not have procedures in place to respond to notifications received or to send notifications of possible errors or non-compliance. Chile received a notification from one partner and it reported ongoing discussions with the Financial Institutions involved in the issues raised.
Based on these findings it was concluded that Chile is not meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. More specifically, fundamental issues have been identified, including with respect to a lack of procedures to follow up on received notifications and to send notifications (i.e. under Section 4 of the MCAA or equivalent). Chile should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Chile should develop and implement procedures to respond to notifications from exchange partners including in a timely manner.
Chile should develop and implement procedures to notify exchange partners of possible errors or non-compliance identified.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Chile’s implementation of the AEOI Standard is partially compliant with respect to exchanging the information effectively in practice and in a timely manner. More specifically, while Chile is meeting expectations with respect to correctly transmitting the information (SR 2.5) and providing corrections, amendments or additions to the information (SR 2.9), there are significant issues with respect to sorting, preparing and validating the information (SR 2.4) and transmitting the information and status messages in a timely manner (SRs 2.6 and 2.8). Chile should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
13 exchange partners highlighted particular issues with respect to preparation and format of the information sent by Chile (representing 17% of its partners). These generally related to problems with file and record validation. More generally, 23 (or 30%) of Chile’s exchange partners reported rejecting more than 25% of the files received, of which 8 (or 10%) reported rejecting more than 50% of files received, due to the technical requirements not being met. This is a very high amount when compared to other jurisdictions and it has increased over time. It was noted that Chile has still not yet addressed many of the issues.
Based on these findings it was concluded that Chile is partially meeting expectations in relation to sorting, preparing and validating the information. However, significant issues have been identified, including with respect to timely responding to peer’s rejection messages. Chile should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Chile should continue to work with its exchange partners to address the issues raised.
Chile should review its systems and procedures to sort, prepare and validate the information to ensure they meet the requirements of the AEOI Standard.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Chile linked to the CTS.
Based on these findings it was concluded that Chile is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Chile is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Four exchange partners highlighted delays in the sending of information by Chile (representing 5% of its partners). This represents a relatively high proportion of exchange partners and has not improved over time. Furthermore, all these four partners stated that the information has still not been received with respect to one or more reporting years.
Based on these findings it was concluded that Chile is not meeting expectations in relation exchanging information in a timely manner. More specifically, fundamental issues have been identified, including with respect to sending information to all peers. Chile should continue its implementation process to ensure its effectiveness, including by addressing the recommendation made.
Chile should ensure it sends information to all of its exchange partners with respect to all reporting years and within the required timeframe.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Chile’s exchange partners did not raise any concerns with respect to Chile’s use of the agreed transmission methods and therefore with Chile’s implementation of this requirement.
Based on these findings it was concluded that Chile is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Chile is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Two exchange partners highlighted delays in the sending of status messages by Chile, representing 5% of its partners. Chile has still not yet sent some of the status messages due to be sent in 2021, as well as some that were due to be sent in prior years.
Based on these findings it was concluded that Chile is partially meeting expectations in relation to the receipt of the information. However, significant issues have been identified, including with respect to sending status messages to all its partners. Chile should continue its implementation process to ensure effectiveness, including by addressing the recommendation made.
Chile should ensure it sends status messages to all its exchange partners in a timely manner.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
Feedback from Chile’s exchange partners did not raise any concerns with respect to Chile’s response to notifications or provision of corrected, amended or additional information and therefore with respect to Chile’s implementation of these requirements. Chile has still no procedures in place to address notifications received from partners, and might encounter difficulties fulfilling this requirement.
Based on these findings it was concluded that, overall, Chile appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. It was also noted that there is room for improvement with respect to having in place procedures to respond to notifications from partners. Chile is encouraged to continue to ensure the ongoing effectiveness of its implementation, including in relation to the area highlighted.
Chile should develop and implement effective procedures to effectively respond to partners when they notify Chile of errors or suspected non-compliance by its Reporting Financial Institutions.